Here’s Where Amazon and Google Could Make Their Next $100B

WIRED

Tech industry research outfit Forrester just put together a report predicting the future of the cloud computing business. It belongs to Amazon and Google.

Now, Forrester compiled the report before yesterday’s big news that Dell is buying EMC for about $67 billion. But analyst John Rymer says the deal doesn’t really change the picture. Yes, it’s true that in acquiring EMC, Dell will gain stakes in two other companies under the EMC umbrella: VMware and Pivotal. Both are related to cloud computing, but Rymer says neither is a major player in the wider market for “public cloud services,” which is where the future lies.

The major players are, of course, Amazon and Google, who now offer their own infrastructure to the rest of the world as cloud computing services. Oh, and Microsoft. It’s pretty big, too—at the moment bigger than Google. Yes, Pivotal has a good idea on its hands, building tech that mirrors what the likes of Amazon and Google built over the last decade-and-a-half in support of their massive Internet empires. But it turns out that the companies with the strongest incentive to build a better cloud for themselves also are in the best position to offer that cloud to everyone else.

It’s a big shift. The cloud has arrived. It’s inevitable. John Rymer, Forrester Research

Forrester’s report, which draws on interviews with vendors and customers across the market, looks exclusively at “public cloud services”—Internet services, like those from Amazon and Google and Microsoft, that let businesses build and operate software without setting up their own hardware. With VMware and Pivotal, Dell is pushing a little further into this space. But VMware and Pivotal are mainly companies that deal in the “private cloud.” That’s when businesses set up their own hardware and configure it to behave kind of like public cloud services, except that it’s only available to them. VMware and Pivotal help companies do that. That’s pretty much what Dell was doing anyway. And it’s not the future.

Rymer and Forrester now call the public cloud a “hyper-growth” market. Their new report predicts that this market will grow to $191 billion by 2020. That’s 20 percent more than they predicted in their previous report, back in 2011. “The adoption among cloud among enterprises, which is really where the money is, has really picked up steam,” Rymer says. “It’s a big shift. The cloud has arrived. It’s inevitable.”

A Hyper-Growth Market

The report encompasses a wide range of services, including everything from things like Amazon’s EC2, which serves up virtual machines where you can run practically any software you want, to things like Microsoft Office 365, a suite of pre-built and configured software applications you can tap into via the ‘net. That’s appropriate. Companies like Amazon and Microsoft and Google continue to expand across all these areas. Amazon just introduced a sweeping array of new services last week.

According to the report, “cloud platform services” like Amazon EC2, where you can build and run your own software, will be a $44 billion market by 2020. Meanwhile, back-end business services will reach $14 billion, and cloud software applications will hit $131 billion. “A lot of businesses are now saying: ‘I want to move my operational application, back office applications, into public clouds,'” Rymer says. “That’s a big deal. In the past, so many people said: ‘I’m never going there.’ Now they’re actually working at it.”

The public cloud won’t take over the whole IT market, Rymer says, but this is where the big growth lies. According to Rymer, software-as-a-service offerings such as Office 365 are growing the quickest at the moment. Eventually, he says, similar growth will extend into so-called platform market.

The biggest winner here will likely be Amazon. “They have a massive customer base and they’re been at it longer than anyone else,” Rymer says. This spring, Amazon revealed that its cloud operation is now a $4.6 billion business, and the company expects it to grow to $6.23 billion by the end of the year. The next-biggest player is Microsoft. In April, Redmond said it’s on track to reach $6.3 billion in revenue this year, including sales of its Office 365 and its Dynamics customer relationship management service. Google, in many respects, has a technical lead on Amazon and Microsoft, but it was slower to market. IBM, with its acquisition of a company called SoftLayer, is also in the mix.

Services from Google and IBM may not grow as quickly as Amazon’s. But they will grow. It’s where the world is moving.

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